Oil Field Shutdown May Hit Gas Prices

Gasoline prices are expected to rise in the next few days following an announcement Monday by BP PLC that it has shut down Alaska's Prudhoe Bay oil field, the largest in the United States, because of pipeline corrosion and a leak.

Although 80 percent of the oil BP produces in Alaska is used on the West Coast, gas prices are expected to rise nationwide because supplies are already tight as a result of disruptions in Iraq, Nigeria and Venezuela, analysts said.

Production of about 400,000 barrels a day is being shut, BP said. Immediately after the announcement, oil prices rose more than $2, surpassing $77 a barrel. They closed at $76.98 on the New York Mercantile Exchange.

The jump indicates that the market expects prices at the pump to increase further.

"Unfortunately, I think the worst is yet to come," said John Kilduff, senior vice president for risk management at Fimat USA Inc. in New York. "I think this is a situation where the pipeline is going to be out for months. This could be the catalyst to get us over $80 a barrel."

The Prudhoe oil field accounts for about 8 percent of U.S. output.

"Prices will go up, mostly because the oil companies will raise them because of this," said Fimat USA's executive director, Kathy Odessa.

Energy Secretary Samuel Bodman said the United States will release oil from the nation's Strategic Petroleum Reserve if asked, to make up for the loss of supplies from Alaska. The reserve holds nearly 700 million barrels of oil, the Energy Department said.

The BP situation comes at a particularly bad time, said Peter Beutel, an energy consultant and president of Cameron Hanover Inc. in New Canaan, Conn.

"Part of the problem is we're already missing production from the Gulf Coast, Nigeria and Iraq," Beutel said. "We were already standing on one foot wondering what's going to happen with hurricanes, and all of a sudden the other leg is pulled out from under us."

BP, the world's second-largest publicly traded oil company, after Exxon Mobil, said the giant pipeline was shut down about 6:30 a.m. Sunday following the discovery of what the company said was "unexpectedly severe corrosion and a small spill" from a Prudhoe Bay oil transit line.

Bob Malone, BP America chairman and president, said in a written statement that "We regret that it is necessary to take this action and we apologize to the nation and to the State of Alaska for the adverse impact it will cause."

BP said it decided to close the Prudhoe Bay field after an examination of data from inspections along the pipeline system in late July. The inspections, BP said, revealed 16 "anomalies" in 12 locations in an oil line on the eastern side of the field.

BP officials said they did not know how long it will take to repair the pipeline.

$2.955

The average price for regular unleaded gas in Hampton Roads on Monday. The national average was $3.036, just shy of the record, $3.057.

Average gas prices Average prices for a gallon of regular unleaded gasoline: